UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K405 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________. Commission file number 0-11774 INVESTORS TITLE COMPANY (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-1110199 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 121 NORTH COLUMBIA STREET, CHAPEL HILL, NORTH CAROLINA 27514 (Address of principal executive offices) Registrant's telephone number, including area code: (919) 968-2200 Securities registered pursuant to section 12(g) of the Act: COMMON STOCK, NO PAR VALUE NONE (Title of each class) (Name of the exchange on which registered) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. Yes X No On February 24, 2000 the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant was $24,627,777. On February 24, 2000 the number of common shares outstanding was 2,620,667. <TABLE> <CAPTION> DOCUMENTS INCORPORATED BY REFERENCE <S> <C> Documents Form 10-K Reference --------- ------------------- Portions of Annual Report to Shareholders Part I, Items 1 and 2 for fiscal year ended December 31, 1999 Part II, Items 5 - 8 Part IV, Item 14 Portions of Proxy Statement (in connection with Annual Meeting Part III, Items 10 - 13 to be held on May 9, 2000) Location of Exhibit Index: The Index to Exhibits is contained in Part IV herein on page 13. </TABLE> 1
PART I ITEM 1. BUSINESS General - ------- Investors Title Company ("the Company") is a holding company which was incorporated in the State of North Carolina on February 13, 1973. The Company became operational June 24, 1976 when it acquired as a wholly-owned subsidiary Investors Title Insurance Company, a North Carolina corporation ("ITIC"), under a plan of exchange of shares of common stock. On September 30, 1983, the Company acquired as a wholly-owned subsidiary Northeast Investors Title Insurance Company ("NE-ITIC"), formerly Investors Title Insurance Company of South Carolina, a South Carolina corporation, under a plan of exchange of shares of common stock. The Company's executive offices are at 121 North Columbia Street, Chapel Hill, North Carolina 27514. The Company's telephone number is (919) 968-2200. Through its two wholly-owned title insurance subsidiaries, ITIC and NE-ITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer and as a reinsurer for other title insurance companies. ITIC was incorporated in the State of North Carolina on January 28, 1972, and became licensed to write title insurance in the State of North Carolina on February 1, 1972. Since that date it has primarily written land title insurance as a primary insurer and as a reinsurer in the States of North Carolina and South Carolina. ITIC is the leading title insurer of North Carolina property and has held this position for sixteen years. In addition, the Company currently writes title insurance through issuing agents or branch offices in the States of Alabama, Georgia, Indiana, Kentucky, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Pennsylvania, Tennessee, Virginia, West Virginia and Wisconsin. Agents issue policies for ITIC and may also perform other services such as acting as escrow agents. ITIC is also licensed to write title insurance in the District of Columbia and the States of Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois, Kansas, Louisiana, Massachusetts, Missouri, Montana, Nevada, New Jersey, North Dakota, Ohio, Oklahoma, Rhode Island, Texas, Utah, Vermont and Wyoming. NE-ITIC was incorporated in the State of South Carolina on February 23, 1973, and became licensed to write title insurance in that State on November 1, 1973. It also currently writes title insurance as a primary insurer and as a reinsurer in the State of New York. Title insurance guarantees owners, mortgagees, and others with a lawful interest in real property against loss by reason of encumbrances and defective title to such property. The commitments and policies issued are the standard American Land Title Association approved forms. Title insurance policies do not insure against future risks. Most other types of insurance protect against losses and events in the future. In the State of North Carolina, title insurance commitments and policies are issued by the home office and branch offices. ITIC has 28 branch offices in North Carolina. 2
In the ordinary course of business, ITIC and NE-ITIC reinsure certain risks with other title insurers for the purpose of limiting their exposure and also assume reinsurance for certain risks of other title insurers for which they receive additional income. For the last three years, reinsurance activities accounted for less than 1% of total premium volume. ITIC currently assumes primary risks up to $1,500,000, reinsures the next $250,000 of risk with NE-ITIC, and all risks above $1,750,000 are then reinsured with a non-related reinsurer. NE-ITIC currently assumes primary risks up to $250,000, reinsures the next $1,500,000 of risk with ITIC, and reinsures all amounts above $1,750,000 with a non-related reinsurer. Both ITIC and NE-ITIC have self-imposed risk retention limits that are more conservative than state insurance regulations require. ITIC's self-imposed retention of $1,500,000 is only 15.53% of its statutorily permitted retention of $9,660,161. NE-ITIC's self-imposed retention of $250,000 is only 21.61% of its statutorily permitted retention of $1,156,657. ITIC's financial stability has been recognized by two Fannie Mae approved actuarial firms with rating categories of "A Double Prime - unsurpassed financial stability" and "A - strong overall financial condition." NE-ITIC's financial stability has been recognized by two Fannie Mae approved actuarial firms with rating categories of "A Prime - unsurpassed financial stability" and "A - strong overall financial condition." In 1988, the Company established Investors Title Exchange Corporation, a wholly-owned subsidiary ("ITEC"), to provide services in connection with tax-free exchanges of like-kind property. ITEC acts as an intermediary in tax-free exchanges of property held for productive use in a trade or business or for investments, and its income is derived from fees for handling exchange transactions. Operations of Subsidiaries - -------------------------- ITIC offers primary title insurance coverage to owners and mortgagees of real estate and reinsurance of title insurance risks to other title insurance companies. Title insurance premiums written are for a one-time initial payment, with no recurring premiums. Schedule A summarizes the net premiums written during the years 1997 through 1999 by this subsidiary. 3
NE-ITIC offers primary title insurance coverage to owners and mortgagees of real estate and reinsurance of title insurance risks to other title insurance companies. Title insurance premiums written are for a one-time initial payment with no recurring premiums. Schedule A summarizes the net premiums written during the years 1997 through 1999 by this subsidiary. For a description of Net Premiums Written geographically, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1999 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report. Seasonality - ----------- Title insurance premiums are closely related to the level of real estate activity and the average price of real estate sales. The availability of funds to finance purchases directly affects real estate sales. Other factors include consumer confidence, economic conditions, supply and demand, mortgage interest rates and family income levels. Historically, the first quarter has the least real estate activity, while the remaining quarters are more active. Fluctuations in mortgage interest rates can cause shifts in real estate activity outside of the normal seasonal pattern. Marketing - --------- ITIC's current and future marketing plan is based upon providing fast and efficient service in the delivery of title insurance coverage through a home office, branch offices, and issuing agents. In North Carolina, ITIC operates through a home office and 28 branch offices. In South Carolina, ITIC operates through a branch office and issuing agents located conveniently to customers throughout the State. ITIC also writes title insurance policies through issuing agents in Alabama, Georgia, Indiana, Kentucky, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Pennsylvania, Tennessee, Virginia, West Virginia and Wisconsin. NE-ITIC currently operates through an agency office in the State of New York. ITIC and NE-ITIC strive to provide superior service to their customers and consider this an important factor in attracting and retaining customers. Branch and corporate personnel strive to develop new business relationships to increase market share. The Company's marketing efforts are also enhanced through advertising. Customers - --------- The Company is not dependent upon any single customer, the loss of which could have a material effect on the Company. 4
SCHEDULE A INVESTORS TITLE INSURANCE COMPANY NET PREMIUMS WRITTEN For The Years Ended December 31 1999 1998 1997 $43,276,169 $44,870,338 $29,434,155 =========== =========== =========== NORTHEAST INVESTORS TITLE INSURANCE COMPANY NET PREMIUMS WRITTEN For The Years Ended December 31 1999 1998 1997 $543,396 $509,358 $441,195 ======== ======== ======== 5
Reserves - -------- The reserves for claims for financial reporting purposes are established based on criteria discussed in Notes 1 and 6 to the Financial Statements incorporated by reference in this Form 10-K Annual Report. Regulations - ----------- Title insurance companies are extensively regulated under applicable state laws. The regulatory authorities possess broad powers with respect to the licensing of title insurers and agents, rates, investments, policy forms, financial reporting, reserve requirements, dividend restrictions as well as examinations and audits of title insurers. The Company's two insurance subsidiaries are subject to examination at any time by the insurance regulators in the states where they are licensed. ITIC is domiciled in North Carolina and subject to North Carolina state insurance regulations. Financial examinations are scheduled every five years by the North Carolina Department of Insurance. ITIC was last examined by the North Carolina Department of Insurance commencing on May 15, 1995 for the period January 1, 1992 through December 31, 1994 with no material deficiencies noted. NE-ITIC is domiciled in South Carolina and subject to South Carolina state insurance regulations. Financial examinations are scheduled periodically by the South Carolina Department of Insurance. NE-ITIC was last examined by the South Carolina Department of Insurance commencing on June 22, 1998 for the period January 1, 1994 through December 31, 1997 with no material deficiencies noted. In addition to financial examinations, both ITIC and NE-ITIC are subject to market conduct examinations. These audits examine domiciled state activity. ITIC's last market conduct examination commenced on April 19, 1999 for the period January 1, 1996 through December 31, 1998 with no material deficiencies noted. NE-ITIC's last market conduct examination coincided with the financial examination, which commenced on June 22, 1998 for the period January 1, 1994 through December 31, 1997. No material deficiencies were noted for NE-ITIC by the market conduct examiners. In accordance with the insurance laws and regulations applicable to title insurance in the State of North Carolina, ITIC has established and maintains a statutory premium reserve for the protection of policyholders. For years prior to 1999, ITIC reserved an amount equal to 10% of current year premiums written and reduced such amounts annually by 5%. For years after 1998, 10% of direct premiums written plus premiums for reinsurance assumed less premiums for reinsurance ceded is reserved and reduced annually, over a period of 20 years, as follows: 20% the first year, 10% the second and third year, 5% the for years four through ten, 3% for years eleven through fifteen, and 2% for years sixteen through twenty. 6
NE-ITIC has established and maintains a statutory premium reserve as required by the insurance laws and regulations of the State of New York. A $1.50 for each risk assumed under a policy or commitment plus one-eightieth of one percent of the face amount of each commitment or policy, reduced by that portion of the reserve established 15 years earlier are accumulated in a statutory premium reserve for years up to 1985. In subsequent years, the addition to the reserve is calculated in the same manner but is reduced annually by 5%. These statutory premium reserve additions are not charged to operations for financial reporting purposes and changes in the statutory premium reserve have no effect on net income of the Company or its subsidiaries for financial reporting purposes. The Company is an insurance holding company, and is also subject to regulation in the states in which its insurance subsidiaries do business. These regulations, among other things, require insurance holding companies to register and file certain reports and require prior regulatory approval of intercorporate transfers including, in some instances, the payment of shareholders' dividends by the insurance subsidiaries. All states set requirements for admission to do business, including minimum levels of capital and surplus. State insurance departments have broad administrative powers and monitor the stability and service of insurance companies. In addition to the financial statements which are required to be filed as part of this report and are prepared on the basis of generally accepted accounting principles, the Company's insurance subsidiaries also prepare financial statements in accordance with statutory accounting principles prescribed or permitted by state regulations. Based upon the latter principles, as of December 31, 1999, ITIC reported $24,150,403 of capital and surplus, and net income of $4,566,498; and NE-ITIC reported $2,313,314 of capital and surplus, and net income of $36,844. ITIC and NE-ITIC both meet the minimum capital and surplus requirements of the states in which they are licensed. Competition - ----------- ITIC currently operates primarily in Michigan, North Carolina, South Carolina and Virginia. ITIC's major competitors are Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Fidelity National Title Insurance Company, First American Title Insurance Company, Lawyers Title Insurance Corporation, Old Republic National Title Insurance Company and Stewart Title Guaranty Company. Key elements that affect competition are price, expertise, timeliness and quality of service, financial strength and size of the insurer. 7
Investments - ----------- The Company and its subsidiaries derive a substantial portion of their income from investments in bonds (municipal and corporate) and equity securities. The investment policy is designed to maintain a high quality portfolio and maximize income. Some state laws impose certain restrictions upon the types and amounts of investments that can be made by the Company's insurance subsidiaries. The Company, ITIC, NE-ITIC, ITEC and SCDP had investment income as set out in the following table for the years 1995 through 1999: <TABLE> <CAPTION> FOR THE YEARS ENDED DECEMBER 31 ------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Company $103,349 $ 76,390 $15,295 $67,162 $16,238 ITIC 1,922,272 1,612,066 1,476,807 1,161,795 1,007,255 NE-ITIC 139,088 133,975 126,426 121,007 111,939 Other 10,962 12,518 9,660 2,968 5,204 ------ ------ ----- ----- ----- TOTAL $2,175,671 $1,834,949 $1,628,188 $1,352,932 $1,140,636 ========== ========== ========== ========== ========== </TABLE> See Note 3 to the Financial Statements incorporated herein by reference for the major categories of investments, earnings by investment categories, scheduled maturities, amortized cost, and market values of investment securities. Employees - --------- The Company had no paid employees. NE-ITIC had two full-time paid employees as of December 31, 1999. Officers of the Company are full-time paid employees of ITIC, which had 202 full-time employees and 17 part-time employees as of December 31, 1999. Trademark - --------- The Company's subsidiary, ITIC, registered its logo with the U.S. Patent-Trademark Office in February, 1987. The loss of said registration, in the Company's opinion, would not materially affect its business. 8
ITEM 2. PROPERTIES The Company owns the office building and property located on the corner of North Columbia and West Rosemary Streets in Chapel Hill, North Carolina, which serves as the Company's corporate headquarters. The building contains approximately 23,000 square feet. The Company's principal subsidiary, ITIC, leases office space in 31 locations throughout North Carolina, South Carolina, Michigan and Virginia. NE-ITIC leases office space in New York. The Company also owns several parcels adjacent to the Company's facility. See Note 9 to the Financial Statements incorporated herein by reference for the amounts of future minimum lease payments. Each of the office facilities occupied by the Company and its subsidiaries are in good condition and adequate for present operations. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are involved in litigation on a number of claims which arise in the normal course of business, none of which, in the opinion of management are expected to have a material adverse effect on the Company's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1999. 9
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY Identification of Executive Officers - ------------------------------------ The following table sets forth the executive officers of the Company as of December 31, 1999. Each officer is appointed at the annual meeting of the Board of Directors to serve until the next annual meeting of the board or until his respective successor has been elected. <TABLE> <CAPTION> Position with Officer Term to Name Age Registrant Since Expire - ---- --- ---------- ----- ------ <S> <C> <C> <C> J. Allen Fine 65 Chairman, 1973 2000 Director and CEO James A. Fine, Jr. 37 President, Director 1987 2000 and Treasurer W. Morris Fine 33 Executive Vice 1992 2000 President, Director and Secretary Elizabeth P. Bryan 39 Vice President 1987 2000 and Assistant Secretary L. Dawn Martin 34 Vice President 1993 2000 and Assistant Secretary </TABLE> J. Allen Fine, Chief Executive Officer and Chairman of the Board of Directors, is the father of James A. Fine, Jr., President, Director and Treasurer of the Company, and W. Morris Fine, Executive Vice President, Director and Secretary of the Company. The business experience of the Executive Officers of the Company is set forth below: J. Allen Fine has been Chairman of the Board and Chief Executive Officer of the Company since its incorporation. Mr. Fine also served as President of the Company until May 1997. Mr. Fine is the father of James A. Fine, Jr., President, Director and Treasurer of the Company, and W. Morris Fine, Executive Vice President, Director and Secretary of the Company. James A. Fine, Jr. was named Vice President of the Company in 1987. In 1997, Mr. Fine was named President and Treasurer and appointed a Director of the Company. James A. Fine, Jr. is the son of J. Allen Fine, Chairman of the Board and Chief Executive Officer of the Company, and brother of W. Morris Fine, Executive Vice President, Secretary and Director of the Company. 10
W. Morris Fine joined the Company in July, 1992, and was subsequently named Vice President of the Company. In 1993, Mr. Fine was named Treasurer of the Company and served in that capacity until 1997. In 1997, Mr. Fine was named Executive Vice President and Secretary of the Company. In 1999, Mr. Fine was elected Director of the Company. Morris Fine is the son of J. Allen Fine, Chairman of the Board and Chief Executive Officer of the Company, and brother of James A. Fine, Jr., President, Treasurer and Director of the Company. Elizabeth P. Bryan joined the Company in 1985 as Controller and in 1987, she was named Vice President of the Company. L. Dawn Martin joined the Company in February, 1991 and in 1993, she was named Vice President of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The high and low sales prices for the common stock on NASDAQ and the dividends paid per common share for each quarter in the last two fiscal years are indicated under "Shareholder Information" in the 1999 Annual Report to Shareholders and are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The selected financial data for the five years ended December 31, 1999 is in the 1999 Annual Report to Shareholders under the caption "Financial Highlights" and is incorporated herein by reference. The information should be read in conjunction with the Financial Statements and Notes and the Management's Discussion and Analysis of Financial Condition and Results of Operations which are in the 1999 Annual Report to Shareholders and are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1999 Annual Report to Shareholders is incorporated herein by reference. 11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management's Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk in the 1999 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data in the 1999 Annual Report to Shareholders are incorporated herein by reference. The financial statement schedules meeting the requirements of Regulation S-X are shown as Schedules I, II, III, IV and V included on pages 19 through 26. The supplementary financial information (Selected Quarterly Financial Data) in the 1999 Annual Report to Shareholders is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in, nor disagreements with, accountants on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Identification of Directors - --------------------------- Information pertaining to Directors of the Company under the heading "Election of Directors" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 2000 is incorporated herein by reference. Other information with respect to executive officers is contained in Part I - Item 4(a) under the caption "Executive Officers of the Company". ITEM 11. EXECUTIVE COMPENSATION Information pertaining to executive compensation under the heading "Executive Compensation" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 9, 2000 is incorporated herein by reference. 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information pertaining to securities ownership of certain beneficial owners and management under the heading "Ownership of Stock by Executive Officers and Certain Beneficial Owners" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 9, 2000 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information pertaining to certain relationships and related transactions under the heading "Compensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 9, 2000 is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) The following documents are filed as part of this report: 1. Financial Statements The following financial statements in the 1999 Annual Report to Shareholders are hereby incorporated by reference: Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 13
2. Financial Statement Schedules - -------------------------------- The following is a list of financial statement schedules and the Auditors' Report on such schedules filed as part of this report on Form 10-K: Investors Title Company and Subsidiaries: Independent Auditors' Report on Financial Statement Schedules <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> Schedule Number Description - --------------- ----------- I Summary of Investments - Other Than Investments in Related Parties II Condensed Financial Information of Registrant III Supplementary Insurance Information IV Reinsurance V Valuation and Qualifying Accounts </TABLE> All other schedules are omitted, as the required information is not applicable or required, or the information is presented in the consolidated financial statements or the notes thereto. 3. Exhibits <TABLE> <CAPTION> Page Number or Exhibit Incorporation by Number Description Reference to - ------ ----------- ------------ <S> <C> <C> (3)(i) Articles of Incorporation Exhibit 1 to Form 10, dated June 12, 1984 (3)(ii) Bylaws Exhibit 2 to Form 10, dated June 12, 1984 (3)(iii) Amendment to Bylaws adopted Exhibit 3(iii) to Form March 10, 1997 10-K, page 27, dated December 31, 1996 Management contract of compensatory plan or arrangement (Exhibits (10)(i) - (10)(xi)) (10)(i) 1988 Incentive Stock Option Plan Exhibit 10 to Form 10-K, page 31, dated December 31, 1989 </TABLE> 14
<TABLE> <CAPTION> Page Number or Exhibit Incorporation by Number Description Reference to - ------ ----------- ------------ <S> <C> <C> (10)(ii) 1993 Incentive Stock Option Plan Exhibit 10 to Form 10-K, page 32, dated December 31, 1993 (10)(iii) 1993 Incentive Stock Option Plan- Exhibit 10 to Form W. Morris Fine 10-K, page 33, dated December 31, 1993 (10)(iv) Employment Agreement dated Exhibit 10 to Form February 9, 1984 with 10-K, page 14, dated J. Allen Fine, Chairman December 31, 1985 (10)(v) Form of Incentive Stock Option Exhibit 10(v) to Form Agreement under 1993 Incentive 10-K, page 29, dated Stock Option Plans December 31, 1994 (10)(vi) Form of Amendment dated Exhibit 10(vi) to Form November 8, 1994 to Stock Option 10-Q, page 11, dated Agreement dated as of November 13, 1989 March 31, 1995 (10)(vii) Form of Stock Option Agreement Exhibit 10(vii) to Form dated November 13, 1989 10-Q, page 13, dated March 31, 1995 (10)(viii) 1997 Stock Option and Restricted Exhibit 10(viii) to Form Stock Plan 10-K, page 29, dated December 31, 1996 (10)(ix) Form of Nonqualified Stock Option Exhibit 10(ix) to Form Agreement to Non-employee Directors 10-Q, page 13, dated dated May 13, 1997 under the 1997 June 30, 1997 Stock Option and Restricted Stock Plan (10)(x) Form of Nonqualified Stock Option Exhibit 10(x) to Form Agreement under 1997 Stock Option 10-K, page 27, dated and Restricted Stock Plan December 31, 1997 </TABLE> 15
<TABLE> <CAPTION> Page Number or Exhibit Incorporation by Number Description Reference to - ------ ----------- ------------ <S> <C> <C> (10)(xi) Form of Incentive Stock Option Exhibit 10(xi) to Form Agreement under 1997 Stock Option 10-K, page 34, dated and Restricted Stock Plan December 31, 1997 (13) Portions of 1999 Annual Included herewith Report to Shareholders incorporated by reference in this report as set forth in Parts I and II hereof. (21) Subsidiaries of Registrant Page 27 of this report (27) Financial Data Schedule - 1999 Included herewith (B) Reports on Form 8-K No reports were filed on Form 8-K for the fourth quarter. </TABLE> 16
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INVESTORS TITLE COMPANY By: /s/J. Allen Fine -------------------- J. Allen Fine Chairman and Chief Executive Officer Date: March 29, 2000 --------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the 29th day of March, 2000. /s/J. Allen Fine /s/William J. Kennedy III - ------------------------------------ --------------------------------- J. Allen Fine, Chairman and Chief William J. Kennedy III, Director Executive Officer /s/James A. Fine, Jr. /s/H. Joe King, Jr. - ------------------------------------ --------------------------------- James A. Fine, Jr., President, Treasurer and H. Joe King, Jr., Director Director (Principal Financial Officer) /s/Elizabeth P. Bryan /s/James R. Morton - ------------------------------------ --------------------------------- Elizabeth P. Bryan, Vice President and Asst. James R. Morton, Director Secretary (Principal Accounting Officer) /s/W. Morris Fine /s/Lillard H. Mount - ------------------------------------ --------------------------------- W. Morris Fine, Director Lillard H. Mount /s/David L. Francis /s/A. Scott Parker III - ------------------------------------ --------------------------------- David L. Francis, Director A. Scott Parker III, Director /s/Loren B. Harrell, Jr. - ------------------------------------- Loren B. Harrell, Jr., Director 17
INDEPENDENT AUDITORS' REPORT Investors Title Company: We have audited the consolidated financial statements of Investors Title Company (the "Company") and its subsidiaries as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and have issued our report thereon dated February 9, 2000; such consolidated financial statements and report are included in the 1999 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of the Company, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. February 9, 2000 18
SCHEDULE I ---------- INVESTORS TITLE COMPANY AND SUBSIDIARIES SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES As of December 31, 1999 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Amount at which shown in the Type of Investment Cost(1) Market Value Balance Sheet (2) - ------------------------------------------------------------------------------------------------------------------------------------ Fixed Maturities: Bonds: <S> <C> <C> <C> States, municipalities and political subdivisions $26,071,853 $25,342,460 $25,461,343 Public utilities 199,159 196,564 196,564 All other corporate bonds 4,825,757 4,740,900 4,740,900 Certificates of deposit 98,982 98,982 98,982 --------------------- -------------------- --------------------- Total fixed maturities 31,195,751 30,378,906 30,497,789 --------------------- -------------------- --------------------- Equity Securities: Common Stocks: Public utilities 385,394 639,244 639,244 Banks, trust and insurance companies 317,190 998,325 998,325 Industrial, miscellaneous and all other 1,249,804 2,853,746 2,853,746 Nonredeemable preferred stocks 558,117 520,944 520,944 --------------------- -------------------- --------------------- Total equity securities 2,510,505 5,012,259 5,012,259 --------------------- -------------------- --------------------- Total investments per the consolidated balance sheet 33,706,256 35,510,048 --------------------- --------------------- Cash equivalents 7,200,644 7,200,644 --------------------- --------------------- Total investments $40,906,900 $42,710,692 ===================== ===================== </TABLE> (1) Fixed maturities are shown at amortized cost and equity securities are shown at original cost. (2) Bonds of states, municipalities and political subdivisions are shown at amortized cost for held-to-maturity bonds and fair value for available-for-sale bonds. 19
SCHEDULE II ----------- INVESTORS TITLE COMPANY (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 <TABLE> <CAPTION> <S> <C> <C> 1999 1998 Assets Cash and cash equivalents $ 579,058 $ 208,315 Investments in equity securities 75,000 75,000 Investments in affiliated companies 35,013,379 31,421,749 Income taxes receivable 847,084 1,171,548 Other receivables 103,011 94,133 Deferred income taxes 37,527 110,025 Prepaid expenses and other assets 20,197 2,423 Property, net 2,251,883 1,737,491 -------------------- -------------------- Total Assets $ 38,927,139 $ 34,820,684 ==================== ==================== Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities $ 148,576 $ 119,826 -------------------- -------------------- Stockholders' Equity: Common stock-no par (shares authorized, 6,000,000; 2,855,744 and 2,855,744 shares issued and 2,736,961 and 2,809,123 shares outstanding 1999 and 1998, respectively) 1,650,350 1,650,350 Retained earnings 37,128,213 33,050,508 ----------------------------------------------- Total stockholders' equity 38,778,563 34,700,858 ----------------------------------------------- Total Liabilities and Stockholders' Equity $ 38,927,139 $ 34,820,684 =============================================== </TABLE> See notes to condensed financial statements. 20
SCHEDULE II ----------- INVESTORS TITLE COMPANY (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 <TABLE> <CAPTION> <S> <C> <C> <C> 1999 1998 1997 Revenues: Investment income-interest and dividends $ 103,349 $ 76,390 $ 15,295 Rental income 445,440 435,821 362,889 Miscellaneous income 70 23,014 - ---------------------- ---------------------- ---------------------- Total 548,859 535,225 378,184 ---------------------- ---------------------- ---------------------- Operating Expenses: Office occupancy and operations 161,061 138,475 133,283 Business development 13,886 13,234 10,927 Taxes-other than payroll and income 46,117 48,569 30,499 Professional fees 30,398 22,269 43,516 Other expenses 44,599 105,857 184,492 ---------------------- ---------------------- ---------------------- Total 296,061 328,404 402,717 ---------------------- ---------------------- ---------------------- Equity in Net Income of Affiliated Cos.* 4,241,630 5,311,677 4,536,715 ---------------------- ---------------------- ---------------------- Income Before Income Taxes 4,494,428 5,518,498 4,512,182 ---------------------- ---------------------- ---------------------- Provision (Benefit) for Income Taxes 74,034 58,989 (18,200) ---------------------- ---------------------- ---------------------- Net Income $ 4,420,394 $ 5,459,509 $ 4,530,382 ====================== ====================== ====================== Basic Earnings per Common Share $ 1.59 $ 1.95 $ 1.63 ====================== ====================== ====================== Weighted Average Shares Outstanding-Basic 2,776,878 2,806,267 2,782,449 ====================== ====================== ====================== Diluted Earnings Per Common Share $ 1.59 $ 1.92 $ 1.60 ====================== ====================== ====================== Weighted Average Shares Outstanding-Diluted 2,786,282 2,841,035 $ 2,826,730 ====================== ====================== ====================== </TABLE> * Eliminated in consolidation See notes to condensed financial statements. 21
SCHEDULE II ----------- INVESTORS TITLE COMPANY (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 <TABLE> <CAPTION> <S> <C> <C> 1999 1998 Operating Activities: Net income $ 4,420,394 $ 5,459,509 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net earnings of subsidiaries less dividends received of $700,000, $575,000 and $595,000 in 1999, 1998 and 1997, respectively, plus $50,000 investment in subsidiary in 1999 (3,591,630) (4,736,677) Gain on disposal of property - (20,475) Depreciation 60,608 57,573 Provision (benefit) for deferred income taxes 72,498 (15,454) (Increase) decrease in receivables (8,878) 21,906 (Increase) decrease in income taxes receivable-current 324,464 (779,017) (Increase) decrease in prepaid expenses (17,774) 66,222 Increase (decrease) in accounts payable and accrued liabilities 28,750 (29,068) ------------------- --------------------- Net cash provided by operating activities 1,288,432 24,519 ------------------- --------------------- Investing Activities: Proceeds from sales of securities - - Purchase of land (325,000) - Purchases of furniture and equipment and building (250,000) (31,555) Proceeds from the disposal of property - 22,475 ------------------- --------------------- Net cash used in investing activities (575,000) (9,080) ------------------- --------------------- Financing Activities: Dividends paid (342,689) (342,689) ------------------- --------------------- Net cash used in financing activities (342,689) (342,689) ------------------- --------------------- Net Increase (Decrease) in Cash and Cash Equivalents 370,743 (327,250) Cash and Cash Equivalents, Beginning of Year 208,315 535,565 ------------------- --------------------- Cash and Cash Equivalents, End of Year $ 579,058 $ 208,315 =================== ===================== Supplemental Disclosures: Cash Paid (Refunded) During the Year For: Income Taxes $ (308,503) $ 853,460 =================== ===================== <CAPTION> Operating Activities: <C> Net income 1997 Adjustments to reconcile net income to net cash provided by operating activities: $ 4,530,382 Equity in net earnings of subsidiaries less dividends received of $700,000, $575,000 and $595,000 in 1999, 1998 and 1997, respectively, plus $50,000 investment in subsidiary in 1999 (3,941,715) Gain on disposal of property - Depreciation 62,362 Provision (benefit) for deferred income taxes (68,883) (Increase) decrease in receivables (70,806) (Increase) decrease in income taxes receivable-current 70,914 (Increase) decrease in prepaid expenses 149,477 Increase (decrease) in accounts payable and accrued liabilities 27,967 ---------------------- Net cash provided by operating activities 759,698 ---------------------- Investing Activities: Proceeds from sales of securities 15,000 Purchase of land - Purchases of furniture and equipment and building (36,112) Proceeds from the disposal of property - ---------------------- Net cash used in investing activities (21,112) ---------------------- Financing Activities: Dividends paid (342,689) ---------------------- Net cash used in financing activities (342,689) ---------------------- Net Increase (Decrease) in Cash and Cash Equivalents 395,897 Cash and Cash Equivalents, Beginning of Year 139,668 ---------------------- Cash and Cash Equivalents, End of Year $ 535,565 ====================== Supplemental Disclosures: Cash Paid (Refunded) During the Year For: Income Taxes $ (20,231) ====================== </TABLE> See notes to condensed financial statements. 22
SCHEDULE II ----------- INVESTORS TITLE COMPANY (PARENT COMPANY) CONDENSED FINANCIAL INFORMAITON OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS 1. The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Investors Title Company and Subsidiaries. 2. Cash dividends paid to Investors Title Company by its wholly-owned subsidiary, Investors Title Insurance Company, were $350,000, $350,000 and $350,000 in 1999, 1998 and 1997, respectively. Cash dividends paid to Investors Title Company by its wholly-owned subsidiary, Investors Title Exchange Corporation, were $350,000, $225,000 and $245,000 in 1999, 1998 and 1997, respectively. 23
SCHEDULE III ------------ INVESTORS TITLE COMPANY AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION For the Years Ended December 31, 1999, 1998 and 1997 <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------- Future Policy Other Benefits, Policy Benefits Deferred Losses, Claims Claims, Policy Claims and Net Net Losses and Acquisition and Loss Unearned Benefits Premium Investment Settlement Segment Cost Expenses Premiums Payable Revenue Income Expenses - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Year Ended December 31, 1999 - ----------------- Title --- $15,864,665 --- $208,605 $43,819,565 $2,175,671 $6,026,064 Year Ended December 31, 1998 - ----------------- Title --- $13,362,665 --- $ 84,598 $45,379,696 $1,834,949 $8,094,950 Year Ended December 31, 1997 - ----------------- Title --- $ 7,622,140 --- $ 96,241 $29,875,350 $1,628,188 $4,679,333 <CAPTION> - ----------------------------------------------------------- Amortization of Deferred Policy Other Acquisition Operating Premiums Segment Costs Expenses Written - ----------------------------------------------------------- <S> <C> <C> <C> Year Ended December 31, 1999 - ----------------- Title --- $34,879,101 N/A Year Ended December 31, 1998 - ----------------- Title --- $32,685,804 N/A Year Ended December 31, 1997 - ----------------- Title --- $21,260,381 N/A </TABLE> 24
SCHEDULE IV ----------- INVESTORS TITLE COMPANY AND SUBSIDIARIES REINSURANCE For the Years Ended December 31, 1999, 1998, and 1997 <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------- Ceded to Assumed from Percentage of Gross Other Other Net Amount Amount Companies Companies Amount Assumed to Net - ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> YEAR ENDED DECEMBER 31, 1999 - ----------------- Title Insurance Premiums $44,098,045 $325,212 $46,732 $43,819,565 0.1% YEAR ENDED DECEMBER 31, 1998 - ----------------- Title Insurance Premiums $45,618,518 $312,627 $73,805 $45,379,696 0.2% YEAR ENDED DECEMBER 31, 1997 - ----------------- Title Insurance Premiums $30,058,724 $241,821 $58,447 $29,875,350 0.2% </TABLE> 25
<TABLE> <CAPTION> SCHEDULE V ---------- INVESTORS TITLE COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1999, 1998 and 1997 - ------------------------------------------------------------------------------------------------------------------------- Balance at Additions Additions Charged Beginning Charged to to Other Deductions- Balance at Description of Period Costs and Expenses Accounts - Describe describe* End of Period - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1999 - ---- Premiums Receivable Valuation Provision $ 775,000 $ 2,793,975 $ - $ (2,793,975) $ 775,000 Impairment of Building Plans $ 218,122 $ - $ - $ (218,122) $ - Reserves for Claims $13,362,665 $ 6,026,064 $ - $ (3,524,064) $ 15,864,665 Provision for Equipment Disposal $ 280,000 $ - $ - $ (280,000) $ - 1998 - ---- Premiums Receivable Valuation Provision $ 350,000 $ 2,106,316 $ - $ (1,681,316) $ 775,000 Impairment of Building Plans $ 150,000 $ 68,122 $ - $ - $ 218,122 Reserves for Claims $ 7,622,140 $ 8,094,950 $ - $ (2,354,425) $ 13,362,665 Provision for Equipment Disposal $ - $ 280,000 $ - $ - $ 280,000 1997 - ---- Premiums Receivable Valuation Provision $ 200,000 $ 1,065,805 $ - $ (915,805) $ 350,000 Impairment of Building Plans $ - $ 150,000 $ - $ - $ 150,000 Reserves for Claims $ 5,086,065 $ 4,679,353 $ - $ (2,143,278) $ 7,622,140 </TABLE> *Cancelled premiums *Wrote off building plans *Payments of claims *Disposed of impaired equipment 26